If consumers of common resources were subject to a tax equal to the external costs imposed due to the negative externality created, their demand curve would shift _______ and they would consume _______.
A)upward; more
B)downward; less
C)downward; more
D)upward; less

Question

Quizplus · Accepted Answer

When consumers are taxed for the external costs they impose, the price of consuming those resources effectively increases. This makes the resources less attractive, leading to a downward shift in the demand curve as consumers are discouraged from consuming as much, hence they would consume less.

If Consumers of Common Resources Were Subject to a Tax